Chapter 4: Managing Risk

Question 1

What are the benefits of risk management?

Answer 1

1. Lower business and liability insurance premiums
2. Reduce chances of being sued
3. Improve chances of prevailing in a lawsuit

Question 2

What are some means to reduce/manage risks?

Answer 2

1. Provisions added to contract
2. Insurance converage
3. Bonding

Question 3

What is insurance?

Answer 3

Protective measure in which coverage is obstained for a specific risk (or set) through a contract.

Question 4

Many construction contracts require the contractor to maintain minimum insurance types/coverages.
What are these types/coverages?

Answer 4

1. Commercial General Liability: $1,000,000 (Single limit) / $1,000,000 (aggregate)
2. Automobile Liability: $1,000,000 / $1,000,000
3. Workers’ Compensation: As required by applicable laws
4. Employer’s Liability: $1,000,000

Question 5

What is property insurance?

Answer 5

Typically covers personal property against damage, theft, or loss (fire, vandalism, & “acts of God”)

Question 6

What is “All-RIsk Builder’s” Insurance?

Answer 6

Insurance that covers machinery, equipment, materials, supplies and fixtures that are part of a structure that is under construction.

Question 7

What is inland marine/equipment theft insurance?

Answer 7

Property Insurance that you can purchase for tools and equipment.

Provides coverage for goods in-transit and projects under construction.

Question 8

What is an Equipment Floater Policy?

Answer 8

Coverage provided for direct physical loss to equipment that is designed to cover mobile equipment while stored on premises, in transit, or at jobsites.
* normal wear and tear not covered.

Question 9

What is transportation floater and Motor Truck Cargo Insurance?

Answer 9

Types of inland marine insurance.
Transportation floater protects transporter against damage that occurs to freight.
Motor truck cargo protects the transporter again in event of damaged/lost freight.

Question 10

What is Liability Insurance?

Answer 10

Designed to protect against third-party claims that arise from alleged negligence resulting in bodily injury/property damage.

Question 11

What is umbrella liability insurance?

Answer 11

Can be used to supplement commercial general liability insurance.
Provides additional coverage in areas not covered in CGL policy.

Question 12

What is Key Man Life insurance?

Answer 12

Type of coverage that provides benefit for specific individuals that play a key role in business continuity.

Question 13

What are the types of employment-related insurance?

Answer 13

1. Workers’ Compensation
2. Unemployment Insurance
3. Social Security Insurance

Question 14

What is workers’ compensation insurance?

Answer 14

Provides coverage for employees that are injured on the job.

Question 15

What is unemployment insurance?
When must employes pay into unemployment insurance?

Answer 15

Insurance that provides benefit to workers who become unemployed through no fault of their own.

Employer pays when > $1,500 in wages in any quarter
or employs worker for 1 day of week for 20 weeks of year.

Question 16

What is a surety bond?

Answer 16

Risk transfer mechanism between a surety bonding company, the contractor, and project owner.
Binds contractor to comply with conditions of contract.
If contractor unable to complete, surety will assume responsibilities and ensure project is completed.

Question 17

What 4 basic requirements are found within surety bonds?

Answer 17

1. Total dollar amount required for the bond
2. Length of the Bond
3. Requirements for notice of defect or lack of maintenance
4. Bond enforcement

Question 18

What is this type of bond:
Bid Bond

Answer 18

Guarantees that the contractor, if awarded the job, will:
* do work at the submitted bid price
* Enter into a contract with the owner
* Furnish the required performance and payment bonds

Question 19

What is a performance bond?

Answer 19

Guarantees that the contractor will complete a contract within its time frame and conditions.

Question 20

What is a payment bond?

Answer 20

Guarantees that a subcontractor and suppliers will be paid for work if performed properly

Question 21

What is a maintenance bond?

Answer 21

Guarantees that for a stated period, no defective workmanship or material will appea in a completed project

Question 22

What is a completion bond?

Answer 22

Provides assurance to the financial backers of a project that it will be completed on time.

Question 23

What is a fidelity bond?

Answer 23

Covers business owners for losses due to dishonest acts by their employees

Question 24

What is a bank letter of credit?

Answer 24

Cash guarantee to the owner.
Can be converted to a payment to the owner by a bank or lending institution.

Question 25

Surety companies will examin companies to determine if they qualify for a bond. What do they check?

Answer 25

1. Good references
2. Ability to meet current and future obligations
3. Experience matching contract requirements
4. Necessary equipment to complete work
5. Financial stability
6. Good Credit
7. Established bank relationships and lines of credit

Question 26

What does the Miller act dictate for federal construction projects?

Answer 26

Requires performance and payment bonds on all federal constructions projects valued > $100,000

Question 27

The South Carolina Consolidates procurement code specifies bond requirements for SC public construction projects.
What are the requirements?

Answer 27

The following bonds for all projects > $50,000
* Bid Bond: A bid bond in the amount of 5% of the amount of bid
* Performance bond: Full contract price
* Payment bond: full contract amount